Thursday’s statement from the People’s Bank of China, announcing that the yuan is no longer pegged to the dollar, was terse and uninformative – you might say inscrutable. There’s a good chance that this is simply a piece of theater designed to buy a few months’ respite from protectionist pressures in the U.S. Congress.
Nonetheless, it could be the start of a process that will turn the world economy upside down – or, more accurately, right side up. That is, the free ride China has been giving America, in which the world’s richest economy has been getting cheap loans from a country that is dynamic but still quite poor, may be coming to an end.
It’s all about which way the capital is flowing.